When $20 Million Is Too Much to Leave the Kids

Among the many disputes now roiling the family of the late Whitney Houston is the battle over a $20 million inheritance.

Houston's 19-year-old daughter, Bobbi Kristina Brown, was slated to receive the money in a trust set up before the singer's death just before the Grammy Awards broadcast in February.

But now Whitney's mother, the singer Cissy Houston, and Marion Houston, Whitney's sister-in-law and business manager, have filed a petition as executors of the Houston estate against Brown in Georgia state court.

Cissy Houston wants to restrict the inheritance payments to Brown, calling Brown " a highly visible target for those who would exert undue influence over her inheritance and/or seek to benefit from respondent's resources and celebrity."

Court documents say that the schedule of distributions of Brown's inheritance aren't in keeping with Whitney's "intent to provide long-term financial security and protection for her child." (Read more: Kids Unfit to Inherit, Say Millionaire Parents)

Media reports say Cissy Houston is worried that the money will make Brown a target for financial predators or tempt her into a dangerous lifestyle.

While the Houston family has its own particular problems (and there have been many), wealthy families frequently confront the same question: how to leave millions to your kid without ruining her life?

Hugh Magill, chief fiduciary officer of Northern Trust, said that he's advised "many" families who struggled with the best way to leave an inheritance to their kids. He said the chief risk is always that the money will impact a kids' motivation and self-reliance.

"Ideally one would set aside enough funds to allow our family members to do anything they could do, but not so much that they could do nothing," Magill said.

To help them through the decision, Magill often offers the following advice to clients:

Create a discretionary trust. A discretionary trust is one that holds assets for a beneficiary (the inheritor) and details the way in whose those funds as managed and released. He said the trust can protect against creditors, divorces or risky investments. It can allow spending for only certain things, like buying a home or funding an education. (Read more: Millionaires Trust Their Advisers - With Half)

A discretionary trust doesn't guarantee bad decisions or poor spending, Magill said, but "it can certainly help guard the wealthy."

Start early. Springing the news on a kid that they're about to inherit $20 million is a recipe for disaster. Magill said parents should prepare their kids for their inheritance years before the money drops. "It's about laying a foundation well before they turn 18," he said. "It's about building good financial habits at home and leading by example and responsibility."

Start with allowances and chores, Magill suggested. Then moved to basic financial education and eventually to investing lessons, financial planning and philanthropy.

Keep your estate plan up to date. ven wealthy families sometimes create an estate plan and fail to update it regularly. He said estate planning should be "an iterative process," with estate plans revised as life circumstances change. "It's not once-and-done," he said.

He said that even young parents, like Whitney Houston, need to prepare plans for their estate.

"When the estate plan is implemented and the children are young, it's important to work with family advisors, the estate planning attorney and the accountant and guardian to have a thoughtful discussion about what has been set aside and how the plan was designed."